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Performance summary

On the back of poor performance at the operating level, bottom line plummeted by 52.6% YoY.

Financial performance: A snapshot

(Rs m)

2QFY14

2QFY15

Change

1HFY14

1HFY15

Change

Net sales

8,389

7,749

-7.6%

16,342

17,031

4.2%

other operating income

78

57

-26.4%

180

135

Expenditure

6,122

6,458

5.5%

12,467

13,509

8.4%

Operating profit (EBDITA)

2,345

1,348

-42.5%

4,056

3,657

-9.8%

EBDITA margin (%)

27.7%

17.3%

24.5%

21.3%

Other income

53

87

63.4%

98

150

53.4%

Interest (net)

57

57

0.2%

129

115

-10.9%

Depreciation

252

396

57.1%

493

775

57.1%

Profit before tax

2,089

981

-53.0%

3,531

2,917

-17.4%

Forex (gain)/loss

399

94

878

71

Tax

396

275

-30.5%

641

778

21.5%

Profit after tax/(loss)

1,295

613

-52.6%

2,013

2,068

2.7%

Net profit margin (%)

15.4%

7.9%

12.3%

12.1%

No. of shares (m)

126.2

Diluted earnings per share (Rs)

38.3

Price to earnings ratio (x)*

17.4

* On a trailing 12-months basis

What has driven performance in 2QFY15?

Topline (including other operating income) declined by 7.8% YoY. Both formulations and API exports declined during the quarter

Business Mix

(Rs m)

2QFY14

2QFY15

Change

1HFY14

1HFY15

Change

Formulations

6,435

6,341

-1.4%

12,265

13,150

7.2%

(% of revenues)

77%

82%

75%

77%

Domestic

2,762

3,279

18.7%

5,265

6,211

18.0%

Export

3,673

3,062

-16.6%

7,000

6,940

-0.9%

API

1,955

1,407

-28.0%

4,077

3,880

-4.8%

(% of revenues)

23%

18%

25%

23%

Domestic

405

445

10.0%

861

1,087

26.2%

Export

1,550

962

-37.9%

3,216

2,794

-13.1%

Total

8,389

7,749

-7.6%

16,342

17,030

4.2%

Domestic formulations business grew at a decent pace of 18.7% YoY during the quarter. In the other international markets, the company witnessed lower growth in the US and other segments. While the sales in US were impacted due to shutdown of Ratlam facility, the sales from its institutional business also witnessed sharp fall of approx 45% during the quarter. This was because WHO asked Ipca to undergo 100% batch testing. This is in contrast with earlier process, since the company was facing regulatory challenges. This delayed the supply for the quarter and company lost sales of approximately 1.5 months.

Due to overall pressure on the sales, the EBITDA margins were impacted. The operating margins declined to 17.3% this quarter from 27.7% in 2QFY14.

Led by the poor performance at the operating level, net profits declined by 53% YoY during the quarter.

Even Indore SEZ receives 483s

Post the recent USFDA inspection at IPCA's Indore facility, some 483s were issued. As per the management, these issues are not as serious as the ones in the Ratlam facility. The management is working to address these issues and has already sent its responses to the USFDA. While the USFDA is expected to respond by December, the company will be able to give more clarity in this regard in the second half of this fiscal.

What to expect?

At the current price of Rs 666, the stock is trading at a price to earnings multiple of 10.5 times our estimated FY17 earnings. We are in the process of revising our estimates on the back of revised guidance given by the company. While Ipca is among the few fundamentally strong companies with good corporate governance, the recent events have impacted the company’s performance and the stock price. The growth and margins will get impacted.

Overall our view is that those who have Ipca in their portfolio can Hold on to the same.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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